Roku Set To Buy Dataxu, Strengthen Advertising Platform

Roku Inc. (NASDAQ:ROKU) recently announced an agreement to acquire Dataxu, a Boston-based advertising technology company, for $150 million in cash and shares of Roku Class A common stock.

The Dataxu advertising platform gives marketers the ability to conduct bidding, plan and place self-serve ads, and manage campaigns through its software solutions.

Notably, Dataxu’s advertising software solutions help marketers across TV, OTT, desktop and mobile to attain optimization in business outcomes through advanced TV and OTT media planning tools, a device graph to link various platforms, and data science facilities.

This is expected to strengthen Roku’s ability to develop long-term consumer relationships with advertising clients and also support the company’s proprietary data management capabilities.

Notably, Roku expects the deal to close in the fourth quarter of 2019. The company plans to provide more information on its third-quarter earnings call scheduled for Nov 6.

Dataxu to Aid Roku’s Ad Ambitions

Roku’s acquisition of demand-side platform, Dataxu will position the streaming service provider to compete more fiercely for ad dollars as it shifts from the $70 billion linear TV market to digital platform.

The company generates revenues from subscriptions and advertising, with advertising boasting long-term potential for sustainable growth. In second-quarter 2019, the company’s platform revenues from ads and subscriptions surged 85.6% to $167.7 million compared with $90.3 million in the same period of 2018.

Per comScore, Roku is the market leader in ad-supported streaming hours. Moreover, at the end of June, it had over 30.5 million active accounts.

The acquisition will enhance and automate services provided to marketers on Roku’s leading advertising platform. dataxu’s software will provide marketers on Roku the ability to automate how they purchase video ads across platforms, including online video TV and OTT, on Roku’s owned and operated properties using a self-serve interface.

Additionally, the deal will also bring in dataxu’s experienced team, which includes talent in software engineering, data science and analytics to better facilitate new and existing marketers on Roku’s platform.

Notably, dataxu recently received highest scores for cross-channel video advertising offerings, per Forrester’s New Wave: Cross-Channel Video Advertising Platforms 2019 report. The company also received a “differentiated” rating in categories such as OTT Buying, Video Buying, Audience Discovery, Measurement, and Product Roadmap.

Competition in Video Advertising Market

Roku’s Dataxu acquisition is expected to boost its competitive prowess in the rapidly growing digital video advertising market. Advertisers are largely focusing on driving revenues and customer growth through advanced TV and OTT platforms.

Per a Interactive Advertising Bureau report, spend on video ads for the first half of 2019 totaled $9.5 billion, up 36% over the same period in 2018.

Moreover, digital advertising revenues in the United States reached $57.9 billion during the first six months of 2019 increasing 17% year over year.

Streaming media companies, traditional TV networks and others are racing for the best technology provider to reach viewers with data-driving advertising.

Last year, AT&T (NYSE:T) acquired ad tech platform AppNexus for $1.2 billion to enable publishers and agencies to buy and sell ads in an automated fashion. Moreover, the company’s division Xandr inked a deal to purchase Clypd, a sell-side platform that specializes in providing marketers the ability to buy both digital and linear TV ads with improved targeting.

Recently, Rubicon Project (NYSE:RUBI) also announced buying RTK.io for $11 million. The company provides publishers with an integrated user interface to configure, install, and implement a complete header bidding solution.

Nevertheless, Roku is benefiting from robust growth in advertising driven by monetized video ad impressions, which more than doubled year over year, in second-quarter 2019. The trend is expected to continue throughout 2019.

Zacks Rank & Another Stock to Consider

Roku currently sports a Zacks Rank #1 (Strong Buy).

Dish Network (NASDAQ:DISH) is another stock in the consumer discretionary sector carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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